In a significant strategy pivot, Walgreens is considering selling its VillageMD primary care subsidiary just three years after purchasing it for $5.2 billion, according to an August 7 SEC filing.
VillageMD clinics provide primary care services, with many locations attached to Walgreens pharmacies. The retail pharmacy chain’s goal when it first bought VillageMD was to get into the value-based care business, which managing partner Michael Abrams at healthcare consulting firm Numerof & Associates previously told Healthcare Brew is a lucrative expansion opportunity for pharmacies.
In the SEC filing, Walgreens executives said they’re “evaluating a variety of options” for VillageMD, which “could include a sale of all or part of the VillageMD businesses, possible restructuring options, and other strategic opportunities.”
Walgreens announced in March that it would close 160 VillageMD clinics following a $6 billion net loss reported in Q2 2024 earnings. Walgreens CEO Tim Wentworth then said in late June that although the company would reduce its stake in VillageMD, it would continue to “believe in [its] future” and “remain an investor and partner,” as Healthcare Brew reported at the time.
The backstory. VillageMD played a large part in Walgreens’s goal of becoming a “consumer-centric healthcare company” rather than just a chain of pharmacies, a plan former CEO Rosalind Brewer announced in 2021.
As part of that plan, Walgreens spent more than $13 billion to build out its US Healthcare unit, which includes VillageMD, specialty pharmacy company Shields Health Solutions, and post-acute care company CareCentrix.
Michael Cherny, a senior managing director of healthcare technology and distribution at investment bank Leerink Partners, told Healthcare Brew last year that Brewer’s strategy was “a drastic difference” from how the company had previously operated.
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Now, under current CEO Wentworth, who took the reins in October 2023, Walgreens appears to be “putting all that strategy in reverse,” according to John Ransom, managing director of healthcare research at investment bank Raymond James.
“[With] the stock at $10 a share, it’s not surprising to conclude that those moves didn’t work out,” Ransom said of Brewer’s strategy to move deeper into healthcare.
In June, following Walgreens’s most recent earnings, shares fell over 20% and were down 54% compared with the start of the year, the New York Times reported. Walgreens reported a $13.1 billion operating loss for the first nine months of FY2024 and lowered its 2024 profit forecast from $3.20–$3.35 per share to $2.80–$2.95 per share.
What is surprising, however, is the decision to sell VillageMD right now, at a time when the asset isn’t performing well, Ransom added. “The timing of that just doesn’t seem to make any sense right now.”
Moving forward. It’s unclear what Wentworth’s strategy is exactly, as company execs haven’t publicly disclosed many details about the shift. But, according to Ransom, it appears the CEO’s hoping to refocus on the retail pharmacy part of Walgreens’s business.
“Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare,” Wentworth said in the company’s Q3 2024 earnings release.